In the world of online payments, there’s a lot happening behind the scenes when you swipe your credit card or click “checkout” on your favorite e-commerce site. For customers and businesses alike, understanding the intricacies of credit card transactions can be daunting. That’s why we’re here to demystify the process, focusing specifically on authorization, capture, and void — the fundamental components that ensure smooth and secure payment processing.

Authorization

When you make a purchase with your credit card, the first step in the transaction process is authorization. This is where your payment provider communicates with the issuing bank (the bank that issued your credit card) to verify that the card is valid and has sufficient funds to cover the transaction amount.

The issuing bank responds with either an approval or a decline. If approved, a hold is placed on the funds in your account, effectively reserving the amount for the transaction.

If the card network or the issuing bank declines the card transaction then an authorization code will appear along with the transaction. These codes come from the card networks (Visa/Mastercard) or the customer’s bank account, not Coinflow. Coinflow is not at fault for these declines. A list of these codes with their reasons can be found here.

During the card authorization phase, the payment processor validates the purchase made by the customer. During the authorization phase, the customer will see a transaction that shows as a pending on their card statement. Note that this is not officially a charge until the payment is captured, per the below steps.

Capture

Once authorization is obtained, the next step is capture. This is where the Coinflow actually collects the funds from the customer’s account. Capture can specify an amount equal to or less than the original capture amount.

Here’s what happens:

1. Coinflow completes any pre-authorization steps: This could be for example sending Credits to a customer’s wallet, sending USDC directly to a merchant, or executing a transaction on the customer’s behalf.
2. Purchase Capture: Coinflow communicates with our payment gateway’s to capture the payment. The acquiring bank debits the funds from your account and credits them to the merchant’s account. This completes the transaction.

The combination of the authorization before running any blockchain transactions with customer capture after the fact, ensures the following:

• The customer always has the funds for the good/service they are purchasing
• The customer will never be charged in the case that a blockchain transaction fails and cannot be completed (such as a NFT already was purchased by another customer)
• Coinflow can calculate exact gas fees & token prices used in the transaction after the fact, and charge the customer the exact amount. Note: Depending on the customer’s bank, the customer will either see their original payment amount change after it is out of the “pending” state, or they will see a separate credit line item on their statement.

Void

Sometimes, transactions need to be canceled after authorization but before capture. This is where void comes into play. A void essentially cancels the transaction before any funds are transferred.

Here’s when a void might be necessary:

1. Failed Transactions: The blockchain transaction the customer or Coinflow needs to run is failing for any reason. (ex: NFT customer wants to purchase is no longer available).
2. Cancellation: For whatever reason the customer or the merchant might want to cancel the transaction.
3. Fraud Suspicion: If chargeback protection is enabled Coinflow automatically voids authorizations which our fraud detection provider deem to be fraudulent or at high risk of dispute. You can learn more about this process here.
   
   Voids can usually only be performed before the transaction is captured. Once captured, a refund process will need to be initiated instead and all applicable credit card fees will be the responsibility of the merchant. Depending on the customer’s bank, the customer will either see their original “pending” charge on their statement disappear, or they will see a separate credit line item on their statement.

Why Understanding These Processes Matters:

Knowing how purchases are processed and what each step in the process means allows your business to respond to customer questions related to their account statements in a timely manner.

If you would like to know more, please check out the docs available here, or reach out to sales at sales@coinflowlabs.app.